Category Archives: Colorado

February 16, 2015

Lessons From a $15M Discrimination Verdict

A Colorado federal jury reportedly awarded $15 million last week to 11 workers who claimed they had been subject to workplace harassment, discrimination and retaliation because of their race and national origin. Ten of the 11 current and former workers who sued their employer, a trucking and mail-sorting company at Denver International Airport, were black men. Three had been born in the United States and the remaining seven were from Mali, Guinea and Brazil. Their allegations included that racist comments pervaded the workplace, that they were discriminated in work assignments, layoffs and pay and were segregated into certain unfavorable job categories and shifts, and that they faced retaliation after complaining about the harassment and discrimination.

Although we do not know exactly which facts or claims persuaded the jury to award this large sum, the fact that the jury awarded $13 million dollars for punitive damages suggests that it believed the company’s actions (or inactions) were particularly bad.

What can you learn from this significant discrimination verdict? Even if the verdict is later reversed or reduced, you can learn what not to do when managing a racially and ethnically diverse workforce.

Ignoring Complaints and Promoting the Harassers

The workers in this case alleged that they complained internally about racist comments and slurs made by supervisors, leads and co-workers and that nothing was done. Examples of some supposed comments directed toward the workers were “lazy, stupid Africans,” “go back to your f***ing country,” “they need to fire all the n***ers here” as well as regular use of the N-word. Instead of stopping the comments, management supposedly turned a deaf ear and even promoted some of those who made the slurs.

Don’t ignore inappropriate comments when you hear them. It is up to you to stop racial and ethnic slurs immediately and take action to ensure they are not pervasive in your workplace. If an employee complains about discriminatory name-calling and threats, you need to investigate the report and take appropriate action. Be sure to confirm—in writing—that you met with the accuser(s) to discuss the results of your investigation, and ensure there is no retaliation. Then follow-up again to ensure things have improved. Doing so will demonstrate your commitment to a workplace free from discrimination and harassment – so long as you are prepared to take action against those who violate your policies.

Failing to Enforce EEO and Harassment Policies

You likely have an Equal Employment Opportunity and a Harassment policy in your employee handbook, but they do no good if you fail to enforce them. Review your policies, train your supervisors on them and enforce them uniformly and consistently.

Retaliating Against Those Who Complain or Their Supporters

The eleventh worker who sued the trucking company in this case was a white man who offered support for the African workers and provided evidence supporting their allegations. After being terminated from his job, he alleged his firing was in retaliation for his support.

Retaliation is within company control and in many cases, is preventable. Train your supervisors not to treat an employee who has complained of discrimination or harassment, or who has participated in a charge or lawsuit, differently than other employees are treated. Carefully analyze any adverse decision that would affect such an employee and make sure your decision is based on legitimate business reasons and is well-documented, in case you have to defend a retaliation complaint.

Fifteen Million Reasons To Do It Right

You don’t want to end up in front of a jury defending your employment practices, but if you find yourself in that position, you want to be able to show a jury you did everything you could to prevent discrimination and harassment in your workplace. If you don’t take those actions, a jury may very well punish you for it.

December 1, 2014

Colorado’s 2015 Minimum Wage Hike

By Jude Biggs

Amid legislative efforts to raise the federal minimum wage, the Colorado minimum wage is set to go up by 23 cents to $8.23 per hour automatically on January 1, 2015. The state minimum wage is adjusted annually for inflation, as required by Article XVIII, Section 15, of the Colorado Constitution. The minimum wage for tipped employees will be $5.21 per hour.

Employees Subject to the Colorado Minimum Wage

Colorado employees are entitled to the state minimum wage in two situations, namely if covered by (1) Colorado Minimum Wage Order Number 31 (Minimum Wage Order); or (2) the minimum wage provisions of the federal Fair Labor Standards Act (FLSA). The Minimum Wage Order applies to certain employers/employees for work performed within the state of Colorado in the following four industries:

Retail and Service
Commercial Support Service
Food and Beverage
Health and Medical

Each industry is defined within the Minimum Wage Order. Employers covered by the Minimum Wage Order must comply with not only the minimum pay requirements, but also obligations related to meal and rest periods, overtime pay, uniforms, recordkeeping and other labor standards.

Employees subject to the minimum wage provisions of the FLSA (and therefore, also entitled to the Colorado minimum wage) include those non-exempt workers performing work involved in interstate commerce and those working for a business or organization that has two or more employees and has an annual dollar volume of business of at least $500,000 or a hospital, school, government agency or residential medical or nursing facility, regardless of annual sales.

If an employee is subject to both the state and federal minimum wage laws, they are entitled to be paid the higher of the two hourly minimum rates of pay. At present rates, the $8.23 Colorado minimum wage trumps the federal $7.25 minimum hourly rate so employers must pay their non-exempt employees working in Colorado at the higher Colorado rate.

Inflation Adjustment Based on Consumer Price Index

The Constitutionally required annual adjustment in the Colorado minimum wage is measured by the Consumer Price Index (CPI) for Colorado. According to the federal Bureau of Labor Statistics, the CPI for the Denver-Boulder-Greeley metropolitan area of Colorado increased 2.9 percent from the first half of 2013 to the first half of 2014. The overall increase was driven by a nearly 5.0 percent increase in costs for housing as well as a 3.9 percent increase in energy costs and a 2.0 percent increase in food prices. The 2.9 percent raise in the CPI for Colorado was then applied to the 2014 state minimum wage of $8.00 per hour, resulting in a 23 cent per hour increase in the minimum wage for 2015.

Plan Now for the January 1st Wage Increase

Businesses and organizations with employees who are subject to Colorado’s minimum wage should take steps now to update their payroll systems and practices in order to implement the new minimum wage on January 1, 2015. Employers that use an outside payroll vendor should confirm that the payroll provider has programmed the new Colorado minimum wage in their systems to take effect on January 1. Note, too, that employers subject to the Colorado Minimum Wage Order must post a copy of the new Minimum Wage Order in their workplace in an area frequented by employees where it may be easily read during the workday. The Colorado Department of Labor and Employment, Division of Labor, provides a copy of Minimum Wage Order Number 31 at https://www.colorado.gov/pacific/sites/default/files/Proposed%20Wage%20Order%2031%20Rules%209-30-14.pdf.

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November 17, 2014

When Key Employees Go To A Competitor

By Mark Wiletsky

Your executives and top salespeople have access to your most valuable business strategies, sales contacts, growth plans and innovations. What do you do when one (or more) of your key employees leaves to work for a competitor? Without the correct agreements in place to protect your proprietary information, you may have little recourse.

Don’t Rely on a Court to Protect Your Business Information

When a key employee leaves to go to a competitor, the former employer often scrambles to seek a court injunction to prevent the employee from working for the competitor and to stop the employee from disclosing or using trade secrets and confidential information. But courts are not always willing to prevent an employee from moving on, especially if the company does not have a reasonable and otherwise enforceable non-compete agreement in place.

In a recent case in Colorado, a high level executive used his company-issued laptop to send an email containing his business contacts to his personal email address as he began negotiating to work for a competitor. He also downloaded some business information onto a personal external hard drive and thumb drive and kept physical copies of certain business documents in a box in his car. About three weeks later, the competitor hired the executive.

There was no evidence that the competitor requested or obtained from the executive any confidential information, the executive had signed only a nondisclosure agreement with his former employer, and the executive agreed to an injunction preventing him from using his former employers confidential information or trade secrets. Nevertheless, the former employer asked the federal court in Colorado to prevent the executive from working as the competitor’s President for one year, arguing that he had threatened or would inevitably disclose its trade secrets in his new job. Despite the executive’s decision to transfer information to his personal devices just before leaving the company, the court denied the company’s request, citing a lack of evidence that the executive had or would use his former company’s trade secrets to its competitive disadvantage. Cargill Inc. v. Kuan, No. 14-cv-2325 (D.Colo. Oct. 20, 2014). The judge noted that enjoining the executive from working for the competitor would, in effect, afford his former employer something it could have obtained or bargained for: a covenant not-to-compete.

Employment-Related Agreements to Consider

Keeping proprietary information confidential can be key to the future prosperity and competitiveness of your business. You can help protect that information from walking out the door by having key employees sign one or more of the following agreements:

Non-compete agreement: the restriction on working for a competitor must be reasonable in time and geographic scope, and comply with other applicable state law requirements;
Confidentiality agreement: requires employees to keep secret your company’s trade secrets and other proprietary information;
Non-solicitation agreement: restricts an employee from soliciting customers (who must be defined in the agreement) or from soliciting other employees to go to work elsewhere; and
Assignment of inventions: any products, inventions, innovations and other developments created during the worker’s employment are assigned to and owned by the company.

Depending on the circumstances, you may want to incorporate some or all of these provisions into a single agreement, and you may need to address varying state law requirements (or choice of law and venue issues) depending on where your employees are located. However, be careful to tailor your agreements to each type of key employee. For example, the non-compete for your CEO or general manager may need different restrictions than a similar agreement for your Regional Sales Manager. And be sure not to use a non-compete with all employees—including lower level ones who have no need for such post-employment restrictions—because it will diminish your justification for asking a higher-level employee to sign the same or similar agreement.

The bottom line is that you need to be proactive in protecting your vital assets, including your confidential information and your key employees. Taking steps now to implement proper agreements will go a long way in protecting your business down the road when key employees decide to depart.

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November 10, 2014

NLRB Unwilling to Give Up on Workers’ Right to Class Actions

By Brian Mumaugh

Reaffirming its controversial D.R. Horton decision, the National Labor Relations Board (NLRB or Board) recently ruled that an employer who required its employees to agree to resolve all employment-related claims through individual arbitration, waiving their right to pursue class actions, violated the National Labor Relations Act (NLRA). Though two members of the Board dissented, the three member majority pointed to the core objective of the NLRA, namely the protection of workers acting in concert, to find that mandatory arbitration agreements waiving an employee’s right to file a class or collective action is unlawful. Murphy Oil USA, Inc., 361 NLRB No. 72 (Oct. 28, 2014).

Employees Filed FLSA Collective Action

Four employees of Murphy Oil USA, Inc., which operates over 1,000 retail fueling stations across 21 states, filed a lawsuit in federal court in Alabama alleging that the company violated the Fair Labor Standards Act (FLSA) by failing to pay overtime and requiring employees to perform work-related activities off-the-clock. They brought the case as a collective action under the FLSA which allows them to sue on behalf of themselves and all other similarly situated Murphy Oil employees. The company asked the court to dismiss the collective action, seeking to enforce arbitration agreements signed by the employees that require that all claims be arbitrated on an individual basis. One of the plaintiff-employees then filed an unfair labor charge with the NLRB alleging that the company was violating Section 8(a)(1) of the NLRA by using and enforcing mandatory arbitration agreements that prohibited employees from engaging in protected, concerted activities.

Board Asserts D.R. Horton Was Correctly Decided

In deciding this NLRA violation issue, the Board believes the rationale articulated in its 2012 D.R. Horton case is correct, asserting that “[m]andatory arbitration agreements that bar employees from bringing joint, class, or collective workplace claims in any forum restrict the exercise of the substantive right to act concertedly for mutual aid or protection that is central to the National Labor Relations Act.” The Board states that the basic premise of federal labor law – protecting the right of workers to engage in collective action – makes the NLRA different from other labor and employment statutes. The Board points to earlier Supreme Court decisions that made clear that the NLRA protects employees “when they seek to improve working conditions through resort to administrative and judicial forums . . .” Other court decisions cited by the Board held that individual agreements between employees and an employer (as opposed to collective bargaining agreements) cannot restrict employees’ Section 7 rights. Relying on these cases and the majority’s interpretation of the core objective of federal labor law, the Board adheres to its position that protecting workers’ right to pursue collective actions to improve working conditions is a substantive right under the NLRA that cannot be waived by employees through a mandatory arbitration agreement.

Fifth Circuit Got D.R. Horton Decision Wrong, According to the Majority Opinion of Board

In December 2013, a divided Fifth Circuit Court of Appeals held that the NLRA did not override the Federal Arbitration Act (FAA), thereby allowing an employer’s arbitration agreement to be enforced according to its terms, including the agreement’s waiver of class claims. D.R. Horton, Inc. v. NLRB, ___ F.3d ___, 2013 WL 6231617 (5th Cir. Dec. 3, 2013). Rather than settling the issue for the NLRB and employers nationwide, the Fifth Circuit’s decision did little to quell the NLRB’s belief that class action waivers violate the NLRA. In the Murphy Oil case, the Board attempts to explain why it believes the Fifth Circuit got it wrong.

First, the Board asserts that the Fifth Circuit simply followed other FAA cases that did not involve a substantive right under Section 7 of the NLRA. The Board argues that both the NLRA and the FAA must be accommodated and the Fifth Circuit’s decision gave too little weight to the NLRA and its underlying labor policy. Second, the Board states that the Fifth Circuit’s decision forces workers into more costly and disruptive forms of concerted activity than bringing a collective action in court. The Board believes that there is no basis for carving out concerted legal activity as entitled to less protection than other concerted activities, such as picketing, strikes and boycotts. Third, the Board notes that the Supreme Court, while favoring arbitration, prohibits a prospective waiver of a party’s right to pursue statutory remedies and an arbitration agreement that precludes employees from filing joint, class or collective claims regarding working conditions in any forum amounts to a prospective waiver of a right guaranteed by the NLRA.

Analysis By Other Circuits Rejected by Board

The Board pays little attention to and dismisses decisions by three other circuit courts of appeal that rejected the Board’s D.R. Horton rationale. In essence, the Board states that the Second and Eighth Circuits purportedly did not conduct a thorough analysis of the legal issues and the Ninth Circuit amended its decision to refrain from deciding the issue. Consequently, the Board found those decisions to be unpersuasive.

Two Board Members Dissent

Two of the five board members dissented, rejecting the majority’s D.R. Horton rationale. Member Miscimarra stated that the NLRA “cannot reasonably be interpreted as giving employees a broad-based right to “class” treatment under other Federal, State, and local laws.” Member Johnson stated that the Board’s “interpretation of the FAA – which otherwise requires an agreement to be enforced exactly according to its terms – would allow Section 7 to swallow up the FAA itself.” The dissenters also noted that the majority essentially ignored numerous clear decisions of the Supreme Court. In citing the Supreme Court’s 2011 AT&T Mobility, LLC v. Concepcion case, member Johnson stated “Notably, the Court forbade [the majority’s] interpretation [of the FAA] when it decided that the FAA’s savings clause could not be construed to include a right that would be “absolutely inconsistent” with the FAA’s provisions.” He went on to write:

The governing law could not be plainer. Provisions in arbitration agreements precluding class actions may not be condemned simply because they restrict an employee’s ability to use litigation procedures established under other statutes in litigating those employment-related claims. This is especially so where the governing statutes clearly describe the litigation procedures as procedural rights.

The dissenting members believe that employees and employers may enter into agreements that waive class procedures in litigation or arbitration.

What’s Next For Arbitration Agreements That Waive Class Actions?

The current majority of the Board appears unpersuaded by federal court decisions—not to mention the Supreme Court of the United States–holding that its position in D.R. Horton is simply wrong. It appears that, absent a further Supreme Court decision on the issue, the NLRB General Counsel likely will continue to issue complaints against employers who require employees to sign arbitration agreements that include a waiver of joint, class and collective actions. If and when the makeup of the Board changes, the dissenting opinion may become the majority opinion for future cases. In the meantime, employers who mandate such agreements should continue to enforce them. In other words, if faced with a class or collective action by an employee or employees who signed an agreement waiving class claims, the employer should ask the court to compel individual arbitration, dismissing the class/collective action. Despite the Board’s current position, a court is likely to grant that request. Employers should review their arbitration agreements, however, to ensure that any disputes arising under the NLRA are not subject to the mandatory arbitration provision and that employees are not prohibited from participating in proceedings before the Board.

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October 28, 2014

Defeating Micro-Units: Employer Strategies to Challenge Smaller Bargaining Units

By Brian Mumaugh

Unions are organizing smaller segments of an entire workforce in order to get their foot in the door and keep organizing efforts alive. The National Labor Relations Board (NLRB or Board) has approved so-called micro-units, setting employers up for difficult battles over appropriate bargaining units in the future. Employers should think about the possibility of seeing a micro-unit proposed in their workforce—and how to avoid them.

Unions Can More Easily Win Representation For Smaller Groups

As unions press to increase their membership in the United States, unions are looking for new ways to organize workers and remain relevant. Organizing large workforces requires unions to expend significant resources – money, personnel and time – to collect signatures from at least 30% of the proposed bargaining unit to trigger an election (some unions want to see upwards of 70% signing authorization cards before petitioning for an election). Then additional resources are needed to get out the vote to ensure a majority of votes cast are in favor of the union. Large organizing campaigns also give the company time to mount an anti-union campaign.

Organizing micro-units, however, can be done relatively quickly, cheaply and often without much response from the company. Think about it – organizing a unit of 30 workers in a single department may need only one or two union organizers to persuade the 15 to 20 employees needed to win the organizing campaign. Before you know it, you’ve got a segment of your workforce represented by a third party with whom you must collectively bargain. This can lead to multiple micro-units at your company represented by different unions and the headaches multiply.

Parameters For Micro-Units Are Evolving

The NLRB has discretion in representation cases to determine the appropriate bargaining unit, whether an employer unit, craft unit, plant unit or subdivision thereof, pursuant to section 9(b) of the NLRA. Although decided on a case-by-case basis, the main, long-standing factor for determining an appropriate unit was the “community of interest” of the employees involved. In 2011, however, the Board significantly changed that analysis in a case called Specialty Healthcare, allowing the unit petitioned-for by the union to govern except in those situations where the employer can establish by “overwhelming evidence” that the requested unit is inappropriate. This new approach places a high burden on employers who wish to challenge the make-up of the unit proposed by the union.

In recent months, the Board has decided a couple of micro-unit cases that offer some guidance on what it takes to challenge a micro-unit. In a case involving a Macy’s Department store in Massachusetts, the Board deemed appropriate a micro-unit made up of only cosmetics and fragrances employees at the store. Macy’s Inc., 361 NLRB No. 4 (July 22, 2014). The store argued that the unit was too narrow and that the appropriate unit in a retail store context is a “wall-to-wall unit” or, alternatively, all selling employees at the store. The Board did not agree. It concluded that the cosmetics and fragrances employees were a readily identifiable group that shared a community of interest not shared by other store employees. Factors weighing in favor of the micro-unit included the fact that the cosmetics and fragrances employees were in the same department and were supervised by the same managers. In addition, there was little regular contact between the cosmetics and fragrances employees and other store employees. The NLRB found that Macy’s had not met the high burden of showing that other employees should be included in the unit because they did not share an “overwhelming community of interest.”

Coming to the opposite conclusion, however, the Board rejected a micro-unit of sales associates who sold shoes at the Manhattan Bergdorf Goodman store. The union had petitioned for the unit to be made up of 35 women’s shoes sales associates in the Salon shoes department (high end designer shoes) and 11 women’s Contemporary shoes sales associates in the Contemporary Sportswear department (modestly priced shoes). The Board concluded the proposed unit was inappropriate because the two shoe departments were located on separate floors, did not share the same supervisors and managers, did not have any cross-over or interchange between employees and did not have much contact with employees in other departments storewide. The Neiman Marcus Group, Inc. d/b/a Bergdorf Goodman, 361 NLRB No. 11 (July 28, 2014).

Strategies for Attacking Micro-Units

The Macy’s and Bergdorf Goodman cases offer some guidance to help employers avoid union organizing of micro-units. Strategies to consider now, before a union organizing campaign begins, include:

Combining departments or job classifications that share skills or tasks
Cross-training and cross-utilizing workers across departments, classifications or locations
Allowing for promotional and transfer opportunities across department and organizational lines
Revising supervisory and managerial structures so that more employees report to the same managers
Maintaining pay and bonus structures common to all employees or for all in a larger unit.

Micro-units can be a game-changer when it comes to union organizing so employers have to change their own tactics to combat such bargaining units. Taking time now to change organizational and reporting structures can go a long way in overcoming a proposed micro-unit in the future.

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October 21, 2014

EEOC’s Failure to Engage in Conciliation Dooms Its Separation Agreement Lawsuit Against CVS Pharmacy

By Mark Wiletsky

Chalk up a loss for the Equal Employment Opportunity Commission (EEOC) in its lawsuit against CVS Pharmacy’s separation agreements. As we reported earlier, the EEOC sued CVS alleging that CVS’s separation agreements deterred employees from filing charges and communicating with the EEOC about discrimination and retaliation. Dismissing the case, a federal judge recently ruled that the EEOC failed to engage in the required procedural steps, including conciliation, before filing its lawsuit.

EEOC Dismissed Employee’s Charge, Then Went After Employer

This lawsuit is an example of the aggressive, proactive nature of the EEOC in extending the protections of Title VII to new and novel claims. The case arose after CVS terminated Tonia Ramos, a pharmacy manager. Ms. Ramos signed CVS’s standard separation agreement, which included a release of claims and a covenant not to sue. She then proceeded to file a charge with the EEOC claiming that her discharge was based on sex and race in violation of Title VII. Almost two years later, the EEOC dismissed Ms. Ramos’s charge.

The EEOC then contacted CVS asserting that based on the separation agreement, CVS was engaging in a pattern or practice of resistance to their employees’ full enjoyment of rights under Title VII. In other words, the EEOC concluded that even though the individual employee did not have a valid discrimination claim against CVS, it would bring a pattern or practice case against CVS based on the language in its standard separation agreement used with potentially hundreds of former employees.

No Conciliation, No Lawsuit

Under Title VII enforcement procedures, the EEOC has the authority to investigate and act on a charge of a pattern or practice of discrimination, whether filed on behalf of an allegedly harmed employee or by the EEOC itself. The procedures require that the EEOC try to resolve any alleged unlawful employment practices through informal means before filing a lawsuit. Such means include conferences, conciliation and persuasion. Although the EEOC and CVS discussed potential settlement by telephone twice before the EEOC filed suit, the EEOC failed to engage in conciliation, which proved fatal to its case. Because an attempt at reaching a conciliation agreement is a prerequisite to the EEOC filing suit and it was undisputed that the EEOC did not engage in any conciliation process, the federal court dismissed the EEOC’s case against CVS.

Judge’s Guidance is in the Footnotes

The case was dismissed on procedural grounds, but the judge took the opportunity to offer his view on the merits of the EEOC’s arguments in several footnotes in the opinion. First, the EEOC argued that the term “resistance” as used in Title VII should be interpreted broadly to extend to the language in CVS’s separation agreement even if that language did not amount to discrimination or retaliation under the Act. The judge rejected that argument, stating that the term “resistance” requires some retaliatory or discriminatory act.

Second, the judge discussed the “covenant not to sue” provision in CVS’s separation agreement. Even though the provision stated that an employee could not “initiate or file . . . a complaint or proceeding asserting any of the Released Claims,” the release of claims (in another paragraph of the separation agreement) stated that it did not limit “any rights that the Employee cannot lawfully waive.” In addition, the agreement contained two carve out provisions specifying an employee’s “right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws” and that the agreement did not prohibit the employee from cooperating with any such agency in its investigation. The judge wrote that these provisions would allow an employee to file an EEOC charge. He went on to write that even if the separation agreement explicitly banned filing charges, those provisions would be unenforceable and could not constitute “resistance” under Title VII.

One Case Down; One Still Pending

The dismissal of the CVS lawsuit is good news for employers who use separation agreements, especially in light of the judge’s comments signaling that the EEOC’s arguments were without merit. However, a similar case filed by the EEOC against College America is still proceeding through the federal court in the District of Colorado. (We wrote about the College America case here.) Like CVS, College America has asked the court to dismiss the EEOC’s case. We will let you know when the court rules on that motion. In the meantime, employers should review their separation agreements to ensure they include a provision that the agreement does not prohibit employees from filing a charge, participating in an investigation or otherwise cooperating with an appropriate federal, state or local government agency that enforces discrimination laws.

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September 9, 2014

Employee Equity Purchase Programs: Ensuring a Great Idea Remains a Good Idea

By Bret Busacker

With the return of some prosperity in the economy, we have seen an uptick in employers granting or selling equity (stock or partnership interests) in their businesses to their employees. In some cases, these grants are part of a broad-based employee stock purchase program. In other cases, employers use equity to reward and incentivize key players in their business. In all cases, these programs can be very successful in creating loyalty and incentivizing employees. However, these arrangements are subject to a variety of regulatory requirements. A few insights on some common issues that arise with respect to these arrangements:

Sale of Equity to an Employee May be Compensation. The transfer of equity to an employee (or other service provider) in connection with the performance of service to the employer is a compensatory transaction under Internal Revenue Code Section 83. The amount of the compensation income to the employee is the difference between the fair market value of the equity at the time of grant and the amount the employee pays for the equity. Depending on the situation, an independent valuation of the business may be necessary to establish the fair market value of the equity granted. In all cases, the employer should document that a reasonable valuation method was followed in establishing the fair market value of the equity.

Employees May Elect Early Taxation of Unvested Equity. If an equity award requires the employee to continue to provide services after the date of grant in order for the employee to retain the right to the equity, the equity may be unvested. Unvested equity is not taxable to the employee at the time of grant, but becomes taxable to the employee once the equity vests. An employee who believes an equity award will increase in value and generate a larger tax hit on the vesting date rather than the grant date may elect to accelerate the taxation of the equity to the date of grant (and thus pay taxes when the equity is worth less). This election is commonly referred to as an 83(b) election. Employers should ensure that employees are aware of the 83(b) election option.

Unvested Equity May Not Create Ownership. The Internal Revenue Code provides that an employee is not treated as the owner of the equity granted to an employee unless the equity is fully vested or the employee files an 83(b) election with the IRS. Further, employment agreements, operating agreements and shareholder agreements often contain provisions that create ambiguity as to whether an equity award is vested or unvested. Accordingly, if the parties want to ensure that an employee receiving an equity grant is treated as an owner for tax purposes, including allocations, distributions and dividends, a protective Section 83(b) election could be filed to ensure the employee is treated as the owner of the equity.

Equity Grants May Impact Employee Benefits. Equity grants of partnership interests or stock in an S corporation may have a significant impact on the medical and fringe benefits of employees receiving those grants. If the equity is vested or the employee files an 83(b) election, the employee may be treated as an owner for benefits purposes. Partners in a partnership and owners of more than 2% of the stock of an S corporation are generally not eligible to participate on a pre-tax basis in the medical benefits and other fringe benefit programs otherwise available to employees. In addition, employers should review their retirement plans when granting equity awards to employees to ensure that the compensatory value of the equity awards are accounted for in accordance with the terms of the plan document.

Equity Grants Should Be Accomplished Through a Compensatory Plan. In general, unless securities exemptions exists at both the state and federal levels, the grant or sale of employer stock or partnership interests to employees must be registered under the Securities Act of 1933. This rule applies to private non-publicly traded companies as well as publicly traded companies. Many private companies may take advantage of a special federal securities exemption from the registration requirement by satisfying what is referred to as Rule 701. However, Rule 701 and many state securities laws may only be relied upon if the grants were made pursuant to a written compensation contract or compensatory benefit plan for employees, consultants and/or directors. Further, in some cases it may be required, but it is always a good practice, to provide the award recipients a summary of the material terms of the equity award, a risk of investment statement, and annual financial statements to minimize misunderstanding and the risk of legal claims.

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September 2, 2014

Benefit Plans: Upcoming Compliance Deadlines and End of Year Planning

By Bret Busacker and Bret Clark (formerly of Holland & Hart)

Now that fall is in the air and school has started, we thought this would be a good time to summarize some of the key health and welfare benefit deadlines that are approaching this fall:

September 22

Updated Business Associate Agreements. New HIPAA privacy and security rules adopted last year require revisions to most HIPAA business associate agreements by September 22, 2014. Employer-sponsored health plans that are subject to HIPAA (generally including self-insured health plans and all health flexible spending arrangements (FSAs)) are required to have agreements with business associates, service providers dealing with participant health information on behalf of the plan, that require business associates to comply with the HIPAA privacy and security rules. Your business associates may have already contacted you about revising your agreements. However, employers are ultimately responsible to identify all business associates and ensure that compliant business associate agreements are in place before the deadline.

September 30

Summary Annual Report for Calendar Year Plans. Plans (including retirement plans and welfare plans) that filed the 2013 Form 5500 by July 31, 2014 must provide the Summary Annual Report for the 2013 calendar year to plan participants no later than September 30, 2014. Plans that file the 2013 Form 5500 extension to file by October 15, 2014 must provide the Summary Annual Report by December 15, 2014.

October 14

Medicare Part D Notice of Creditable Coverage. Employers who offer prescription drug coverage to employees and retirees should provide a notice to plan participants and beneficiaries who are eligible for Medicare Part D (or to all participants) by October 14, 2014 stating whether the employer prescription drug coverage is creditable coverage.

November 5

Deadline to Obtain Health Plan Identifier. All self-insured larger group health plans (those with annual costs of $5 million or more) must obtain a unique group health plan identification number (HPID) from CMS by November 5, 2014. The HPID will be used in electronic communications involving plan-related health information. For this reason, third party administrators of self-insured plans will either obtain the HPID or will coordinate with the plan sponsor in obtaining the HPID. Employers should confirm with their TPA that the plan will have an HPID by the deadline. Please note that employers should obtain an HPID for each group health plan they maintain. Accordingly, employers who have established a single wrap-around group health plan that incorporates all of the group health plans of the employer may only need to obtain a single HPID. However, employers who maintain separate HRA, FSA, and/or medical/dental/vision plans may be required to obtain one HPID for each such group health plan. Smaller group health plans have until November 5, 2015 to obtain an HPID. Please go to this website for more information.

November 15

Transitional Reinsurance Fee Enrollment Information Due. Self-insured health plans must submit their enrollment information to HHS by November 15, 2014 for purposes of calculating the 2014 Transitional Reinsurance fee for 2014. Self-insured health plans that are self-administered are exempt from the Transitional Reinsurance Fee in 2015 and 2016, but must pay the fee for 2014. Based on the enrollment information provided to HHS in 2014, self-insured plans will pay the fee beginning in January 2015.

General Fall Planning (no specific deadline)

ACA Shared Responsibility Planning. The Affordable Care Act employer shared responsibility penalties will begin to be imposed on employers with 100 or more full-time or full-time equivalent employees beginning January 1, 2015. Employers should start now to establish a policy for purposes of determining whether the employer will be subject to the ACA employer shared responsibility penalties and whether the employer is covering those full-time employees that must be offered coverage in order to avoid the shared responsibility penalty.

Summary of Benefits and Coverage, Women’s Health and Cancer Rights Act Notice, Medicaid/CHIP Premium Assistance Notice, HIPPA Notice of Privacy Practices, and Exchange Notice. Employers should confirm that these notices are included with the enrollment materials provided to participants during open enrollment and to participants at the time of any mid-year enrollment due to becoming newly eligible for the plan. If these notices are not included with enrollment materials prepared by your provider, consider supplementing the enrollment materials with these notices. Employers should also confirm that their COBRA notices have been updated to reflect recent changes to the model COBRA notice to reflect the establishment of the Health Marketplace Exchanges.

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August 7, 2014

Favoritism to Paramour is Not Gender Discrimination

By Brad Cave

Friendship, cronyism, nepotism, affairs – many types of personal relationships may result in one employee being treated better than another employee. But is that favoritism discriminatory? Does the non-favored employee have a discrimination claim against the employer? No, Title VII does not prohibit favoritism based on a special relationship, says the Tenth Circuit Court of Appeals.

“I Like You Best”

If an employer pays the CFO’s sister a higher wage than other employees doing similar work, offers the most lucrative deals to an employee who is the boss’s best friend or gives playoff tickets as a bonus to the manager’s boyfriend who works at the company, that special treatment is permissible because it is based on the special relationship or bond between the parties, not on a protected characteristic. It is only when the differential treatment is based on an impermissible classification, such as gender, race or age, that it crosses the line into unlawful discrimination. In a recent decision, the Tenth Circuit Court of Appeals affirmed that distinction, ruling that a supervisor’s favoritism toward a female subordinate based on their purported intimate relationship did not amount to reverse gender discrimination against her male counterpart. Clark v. Cache Valley Elec. Co., No. 13-4119 (10th Cir. July 25, 2014).

Reverse Gender Discrimination Under Title VII

Project manager Kenyon Brady Clark sued his employer, Cache Valley Electric Company, alleging violations of Title VII. Clark’s discrimination claim alleged that his supervisor, Myron Perschon, favored a female project manager, Melissa Silver, over him because Perschon and Silver were in a romantic relationship. Clark asserted that Perschon gave Silver better work assignments, paid her more for performing less work and performed most of Silver’s job duties himself. Although it turned out that there had been no affair, Clark still asserted that “whether they were having sex or not, there was favoritism.” When asked about the reason for the favoritism at his deposition, Clark admitted that if the favoritism was not due to a romantic relationship, he did not know the reason for it.

The Court analyzed Clark’s claim as a reverse gender discrimination case under which Clark needed to show circumstances that would support an inference that his employer discriminates against the majority (i.e., males) or that “but for [his] status the challenged decision would not have occurred.” Significantly, Clark did not assert that the favoritism was due to Silver being a female or that Cache Valley treated women more favorably than men. Instead, Clark focused on the preferential treatment that his supervisor offered to one specific female employee. That deficit was fatal to his reverse gender discrimination claim. The Court cited numerous cases where the motives for preferential treatment were other special relationships, such as friendship, nepotism or personal fondness or intimacy, in which it had ruled that such favoritism was not within the purview of Title VII’s anti-discrimination provisions. Because Clark’s discrimination claim was based only on the favoritism shown to a special friend and not on a protected characteristic, his claim was not covered by Title VII. The Court affirmed summary judgment in favor of Cache Valley.

Retaliation Claim Fails Too

Clark also raised a retaliation claim in his lawsuit against Cache Valley. Clark asserted that his supervisor, Perschon, retaliated against him by trying to get a competitor to hire him, refusing to communicate with him and otherwise distancing himself from Clark. Clark also alleged that he was fired in retaliation for complaining about Perschon’s favoritism and retaliation. He had complained to management about the alleged affair between Perschon and Silver, stating that it was difficult to continually respond to vendors and suppliers who had questions about the purported relationship. He reported that they were acting like a married couple. He later complained about the preferential treatment that Silver received from Perschon, including receiving better job assignments and higher bonuses. In a letter to the company’s CEO and to human resources, Clark wrote that over the past three years, he had personally and professionally suffered serious and real adverse effects to his employment due to the alleged affair. He wrote that the affair created a hostile work environment and that it was the company’s responsibility to ensure that the workplace was free of harassment and retaliation. Shortly after meeting with HR and the company’s legal counsel to discuss his letter, Clark was terminated.

The Court rejected Clark’s retaliation claim. To make out a Title VII retaliation claim, Clark needed to show that (1) he engaged in protected opposition to discrimination, (2) a reasonable employee would have found the challenged action materially adverse, and (3) a causal connection existed between the protected activity and the materially adverse action. The Court concluded that Clark failed to show that he engaged in protected opposition to discrimination. He needed to show that he had a reasonable good-faith belief when he complained to the company that he was engaging in protected opposition to discrimination and that his good-faith belief was reasonable both subjectively and objectively. He failed to do so. Although he made statements about a “hostile work environment” and “discrimination” in his complaints to the company, the Court found such statements to be conclusory and not related to gender discrimination. The statements were about Perschon’s favoritism to Silver based on the alleged inappropriate relationship, which was not gender discrimination. Therefore, Clark’s retaliation claim failed.

Just ‘Cuz It’s Legal Doesn’t Make It Smart

Clark’s reverse discrimination claim was a little more cut and dried than most because he essentially admitted that the preferential treatment shown by his supervisor to a female colleague was not due to her status as a female. Consider whether the outcome would have been different had Clark provided evidence that the supervisor historically treated women better than men. Or think about other situations where special relationships result in favoritism, such as when the boss takes all his male cronies to play golf with clients while the female employees toil away at work. Even though the courts have been clear about distinguishing favoritism based on special relationships from discrimination based on a protected class, employers are wise to steer clear from favoring some employees over others, especially when it comes to pay, bonuses and benefits where the non-favored employees can prove financial harm. Keeping the terms and conditions of employment on an even footing will help keep your workplace productive, the morale of employees high and your company out of court.

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June 26, 2014

Recess Appointments to NLRB Invalid, Rules U.S. Supreme Court in Noel Canning Opinion

By Brian Mumaugh

In a unanimous decision, the U.S. Supreme Court ruled today that President Obama lacked the authority to make three recess appointments to the National Labor Relations Board (NLRB) while the Senate was in pro forma session in early January 2012. While affirming the decision of the D.C. Circuit that the appointments fell outside the scope of the Recess Appointments Clause, the Supreme Court came to that conclusion on different grounds. NLRB v. Noel Canning, No. 12-1281 (June 26, 2014). The decision effectively invalidates the rulings made by the three NLRB members who were improperly appointed via recess appointment.

Recess Appointments Clause

The Recess Appointments Clause gives the President the power “to fill up all Vacancies that may happen during the Recess of the Senate.” This power essentially allows the President to fill vacant federal positions without obtaining Senate confirmation of the appointments and is intended to ensure the continued functioning of the government at those times when the Senate is not in session.

At issue in the Noel Canning case was whether President Obama’s appointment of three members of the NLRB while the Senate was on a three-day intra-session break in which the Senate was in pro forma session fell within his authority under the Recess Appointments Clause. The Supreme Court said no.

Vacancies May Be Filled During Intra-Session and Inter-Session Recesses

Unlike the D.C. Circuit, the Supreme Court ruled that the Recess Appointments Clause applies during intra-session recesses (breaks in the midst of a formal Senate session) as well as during inter-session recesses (breaks between formal sessions of the Senate). The Court stated that the Senate is equally away and unavailable to conduct business during both types of breaks. The Court also looked carefully at the history of recess appointments and found that Presidents have made intra-session recess appointments going all the way back to President Andrew Johnson in 1867. During that time, the Senate has never taken any formal action to deny the validity of intra-session recess appointments. Accordingly, the Court gave great weight to the long-standing practice of allowing recess appointments during both intra- and inter-session recesses.

Recess Must Be Of Sufficient Length

Although the Recess Appointments Clause does not establish how long a recess must be in order to trigger the President’s recess appointment power, the Court held that the Senate’s recess must be of sufficient duration as to be a significant interruption of legislative business. Noting that the government’s attorney conceded that a three-day recess would be too short and that throughout history, no recess appointments had been made during an intra-session recess of less than ten days, the Court wrote that a recess of more than three days but less than ten days is presumptively too short to fall within the Clause.

Vacancies Filled As Recess Appointments Need Not Arise During the Recess

The Court interpreted the Recess Appointments Clause to allow the President to fill vacancies that existed prior to the start of the Senate’s recess. The D.C. Circuit had interpreted the Clause differently, applying only to vacancies that first come into existence during a recess. The Supreme Court chose a broader interpretation to ensure that offices that need to be filled can be filled, even if the vacancy arose before the Senate went into recess. Again, the Court looked at historical practices and found that nearly every President since James Buchanan (term: 1857-1861) has made recess appointments to pre-existing vacancies. Unwilling to counter this long-accepted practice, the Court ruled that any vacancy, whether pre-existing or one that arises during the recess, may be filled under the Recess Appointments Clause.

Applying the Clause to the 2012 NLRB Recess Appointments

The Court ruled that the President lacked the authority to appoint the three members of the NLRB in early 2012 because the Senate was still in session during that time. Although the Senate was meeting just every three days in pro forma sessions, it retained the power to conduct business. Consequently, because the Senate was in session and the three-days between its pro forma sessions was too short of a break to bring it within the scope of the Recess Appointments Clause, the President lacked the authority to make the three NLRB member appointments in January of 2012.

Big Picture – Effect of Noel Canning

There are two primary effects that will come out of today’s Noel Canning decision. First, the NLRB rulings that were made by the improperly appointed members will need to be revisited. Numerous challenges have already been made in some of the affected cases and the current NLRB, which now has five Senate-confirmed members, may need to revisit those rulings.

Second, the future of Presidential recess appointments will hinge on the length of a Senate recess. Political analysts are already stating that both the House and Senate have mechanisms to force the Senate out of a recess into a pro forma session so if those mechanisms are exercised, Congress could limit or block a President’s ability to make recess appointments. We will likely learn a great deal about the scheduling powers of Congress in the days to come.

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